Retirement Plan FOCUS Bulletin - Third Quarter
Employer Match on Student Loan repayment
Fulton is pleased to announce that we can now support the ability for our clients to make Employer contributions on behalf of 401(k) participants who are currently making payments to student loans.
The purpose of a student loan contribution program is to assist employees who are missing out on matching contributions as a result of not being able to afford both student loan payments and 401(k) contributions. Abbott Laboratories launched the first such program after receiving a Private Letter Ruling (PLR) from the Internal Revenue Service in 2018 approving a plan design that permitted the employer to treat loan repayments as employee deferrals for the purposes of calculating a matching contribution.
Within the program provided by Fulton, the contributions are technically “employer non-elective” contributions, most commonly referred to as profit-sharing contributions. However, they can be calculated and allocated to employees based on a matching formula. The end result is the same as the Abbott Laboratories, but with considerably more flexibility.
Interested in learning more? Please reach out to your Relationship Manager for more information on this feature.
Per the Internal Revenue Service, one of the most common mistakes a Plan Sponsor makes is not using the correct definition of compensation for contributions and allocations. Your plan document will define compensation for various contributions, including employee deferrals, matching contributions, employer non-electives, etc.
A plan’s definition of compensation doesn’t always include all forms of compensation. They frequently exclude things like bonuses, fringe benefits, and other types of compensation. Fulton works with you at year-end to ensure that testing is performed using the correct compensation. This is why we may request that you provide a breakdown of the different types of compensation paid on a per-participant basis.
Although we do seek to provide oversight and guidance on this topic, you are the first line of defense when it comes to properly using compensation.
We urge you to take a few moments to review how compensation is defined and ensure that your payroll system is set up to allow for deferrals from the correct compensation figures. Also, pay close attention to the breakdown of compensation that we request when collecting and verifying compensation. Lastly, keep this facet of plan administration in mind anytime you change payroll providers or there is a change in the personnel who tracks this information.
Earlier this year, after years of bipartisan work in the House of Representatives in Washington, the SECURE (Setting Every Community Up for Retirement Enhancement) Act was passed with overwhelming support. The vote in committee was unanimous, and the House floor vote was 417 – 3. After passage, the bill was sent to the Senate.
There are widely popular features in the Act: an increase in the age for required minimum distributions from 70 ½ to 72; fiduciary safe harbors for plan sponsors wishing to add lifetime income annuity options; requiring lifetime income projections on participant statements; easing of the Multiple Employer Plan (MEP) requirement that companies participating need to be related; and a few others.
The universal popularity of the Act resulted in many pundits stating that the likelihood of it becoming law was very high—perhaps as high as 90%. However, the bill has stalled in the Senate. The Senate had already seen bills introduced, such as RESA (Retirement Enhancement and Savings Act). This left the Senate with two options: Pass the bill with unanimous consent (nearly impossible), or write and pass a new bill as a counteroffer to the SECURE Act. That bill would then need to go to reconciliation with the House bill to come up with a final version for votes in both houses—all before finally ending up on the president’s desk for signature. Unfortunately, it looks like there’s little or no time for this to happen.
The pundits are now thinking that the likelihood of this passing in this session of Congress is slim.
Five things your plan committee needs to know
Fulton has always sought to provide guidance and education to plan committee members in order to protect the plan, your participants and the committee members themselves. This article does a great job at highlighting some important elements that every plan committee member needs to be aware of—click here to explore the article and learn more.